After victory, Kitzhaber says no more PERS cuts

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SALEM, Ore. (AP) — Nearly a year after beginning a push to convince Oregon lawmakers to stem the growing costs of public-employee pensions, Gov. John Kitzhaber got his wish.

And now, he says, it's time to move on. After lawmakers backed the pension cuts Wednesday — along with a series of other measures intended to boost support in the Legislature — Kitzhaber said further changes to the Public Employees Retirement System are "off the table for this governor."

"We are done," Kitzhaber told reporters. "We're going to move on to other things that are important to Oregonians, put this behind us."

Lawmakers approved the pension cuts as part of a five-bill package Wednesday, then adjourned a special session that consumed three tense days. On top of the pension measures, the agreement included changes to the tax code and a prohibition against local governments regulating genetically modified crops.

Kitzhaber, business leaders, education advocates and other supporters say the rising cost of pensions is contributing to large class sizes and shortened school years and making it difficult for local governments to reinvest in services that were cut during the Great Recession.

Retired government workers will see their pensions grow at a slower pace.

Beneficiaries in the Public Employee Retirement System and unions that represent government workers have vowed to challenge the cuts in court. Many of the lawmakers who voted for the PERS cuts said they didn't want to take benefits from workers, but the system's massive unfunded liabilities require action.

Together with cuts adopted earlier this year, the changes approved Wednesday would erase about a quarter of the system's unfunded liabilities, which were created when investment losses erased 27 percent of the PERS fund in 2008.

Kitzhaber first proposed pension cuts in his budget released in December. Several attempts to marry them with a tax increase fell apart during the regular legislative session, which wrapped up in July.

The agreement just approved was negotiated last month by Kitzhaber and the top Republicans and Democrats in the House and Senate. Democrats agreed to throw in the genetically modified foods bill when they were unable to meet Republican demands for steeper pension cuts or more generous tax cuts for small businesses.

Fearing a growing effort by environmental groups to seek local regulations on genetically modified foods, the agriculture industry has pushed for a statewide pre-emption. Farmers say it would be difficult and expensive to comply with a patchwork of local rules, but environmentalists and organic-food proponents say the state and federal governments have failed to adopt meaningful regulations.

Critics took issue with all parts of the package. Some said it's unfair and potentially illegal to take retirement benefits promised to public employees. Others objected to tax breaks for businesses or to the inclusion of an agriculture measure in a package that initially was targeted at budget matters.

"Trading away environmental protections in unrelated legislative negotiations is an all too common practice that's bad for not just democracy but also the people of Oregon," six environmental groups wrote in a statement following the votes.

Some higher-income individuals and businesses will see a higher tax bill. Individuals earning at least $100,000 — couples more than $200,000 — won't be able to claim the $183 personal tax exemption. Use of a tax deduction for seniors' medical expenses has been restricted based on age and income, but more people will qualify because taxpayers who don't itemize their deductions will be able to claim it.

Taxes on tobacco products would go up as well.

Businesses — known as pass-through entities because their profits are taxed on the owners' individual tax return — would pay a lower rate under certain circumstances. The Earned Income Tax Credit, which benefits low-income workers, would be expanded.

The deal nearly fell apart on Sunday night, but legislative leaders patched it back together on Monday morning as rank-and-file lawmakers reported for the special session. They spent much of the week trying to hammer out details and line up votes.

Senate President Peter Courtney, D-Salem, said he was prepared to adjourn the Senate when it appeared a key piece of the package was headed for defeat in the House. Eventually, three Democrats changed their votes to keep the measures alive.

"I'm glad I don't have a weak heart," Courtney said. "It was very hairy, very scary and very nerve-wracking, and in some ways we're very very lucky that we did it."

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Democratic Gov. John Kitzhaber and Republican state Rep. Dennis Richardson of Central Point squared off Friday, July 18, 2014 in Oregon first gubernatorial debate. The debate was sponsored by the Oregon Newspaper Publishers Association.

Democratic Gov. John Kitzhaber and Republican state Rep. Dennis Richardson of Central Point squared off Friday, July 18, 2014 in Oregon first gubernatorial debate. The debate was sponsored by the Oregon Newspaper Publishers Association.